Media General to buy Meredith Corp. for $2.4 Billion

Wednesday, Sep 09, 2015

Media General Inc. said it agreed to buy Meredith Corp. for about $2.4 billion in cash and stock, continuing a trend of consolidation in the U.S. broadcast industry as local TV stations look for negotiating leverage against large cable and satellite providers.

The offer of $51.53 a share is a 12% premium to Meredith’s closing price on Friday. Including debt, the deal is valued at $3.1 billion.

Meredith, which began as an agricultural publisher in 1902, is known for magazines such as Better Homes & Gardens and Family Circle. But its 17 local TV stations are the centerpiece of the deal. The combined company—Meredith Media General— will encompass 88 stations that reach 30% of U.S. households, or 34 million homes.

“This deal creates a powerful, multiplatform and highly diversified media company and it builds a platform for continued industry consolidation,” Meredith Chief Executive Stephen Lacy said in a conference call with analysts. Mr. Lacy will lead the new company as chief executive.

The deal, which must be approved by both companies’ shareholders and the Federal Communications Commission, is expected to close next June. The companies will swap or divest assets in six markets to address regulatory concerns.

Lance Vitanza, an analyst at CRT Capital Group, said the deal made sense as it has become increasingly difficult for smaller broadcasters to thrive amid consolidation between their distribution partners.

“You’re seeing AT&T buying DirecTV, and Charter in the process of buying Time Warner Cable, ” he said. “The TV guys have to follow suit if they are going to survive.”

Carriage payments—also known as “retransmission consent” fees—have been an important source of growth for stations, complementing the television-advertising business, which can be volatile and spikes in election years. In the latest example of how disputes with pay-TV providers can flare up, the signals of TV station giant Sinclair Broadcast Group went dark on Dish Network Corp. briefly last month until the two sides reached a truce at the behest of the FCC.

Broadcasters are facing new uncertainty in Washington over proposed rules that might weaken their hand in pay-TV negotiations, and a pending rule-making on how they will be treated in new streaming TV packages.

Media General operates or services 71 television stations. After selling most of its newspaper holdings to a subsidiary of Berkshire Hathaway Inc. a few years ago, the company has bulked up through deals, including its purchase of LIN Media LLC last year and New Young Broadcasting in 2013.

Together, Media General and Meredith will have a diverse network, with 29 of their stations affiliated with CBS, 15 with NBC, 14 with Fox, 13 with ABC and 11 with the CW.

The deal could have implications for magazine publisher Time Inc., which was long seen as a potential merger partner for Meredith. Time Warner Inc. decided in 2013 to spin off Time Inc. after talks to merge most of their titles fell apart.

Time Inc. and Meredith have had no recent discussions, according to a person familiar with the matter.

Wells Fargo analyst Marci Ryvicker said in a research note it was possible Media General would choose to spin off its magazine assets in the future.

On the call, executives for both Meredith and Media General said they continued to view the magazine titles as a key driver of content creation for their digital properties, which have a strong audience among women and power a promising digital ad business. “We are forecasting $500 million in revenue annually from these digital offerings,” Mr. Lacy said.

Overall, the combined company will have about $3 billion in annual revenue and a workforce of around 9,000 people.

Shares of Media General had fallen about 33% this year through Friday’s close, prior to the announcement, giving the company a market value of about $1.4 billion compared with Meredith’s $2.1 billion value.

In Tuesday trading, Media General shares fell 6% to $10.48 on the New York Stock Exchange, while Meredith shares leaped 9.9% to $50.47.

Media General shareholders will own about 65% of the new company, while Meredith shareholders will own about 35%.

The companies said they expect $80 million in synergies within the first two years.

The consolidation move comes as many media companies are splitting their broadcast businesses from their print operations. In June, Gannett Co. completed the spinoff of its broadcasting and digital-media business, now called Tegna Inc. That followed similar moves by Tribune Media Co. and News Corp, publisher of The Wall Street Journal.

wsj.com

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